A taxpayer should ensure getting the benefit of all the steps taken on compliance.
That is, for paying taxes, the credit for this should be available, including the tax deducted at source, to be able to adjust this against the tax to be paid. This seems simple and logical but involves addressing some practical difficulties.
The authorities should take into account all the tax deducted and paid to the government during the year.
For example, if there is a total of Rs 1.2 lakh of tax to be paid and the amount already deducted is Rs 1.23 lakh, no extra amount needs to be paid; in fact, there would be a refund.
Quite a few times, this doesn't happen and salaried individuals are shocked to learn a large demand has been raised for dues.
This has happened because the authorities have failed to take into account the tax deducted on salaries and paid to the government. There are a few points that need attention when an individual is faced with such a situation.
The first task for the investor is to ensure the right amount of tax deduction is allowed, as in tax already deducted and paid. A specific process has to be followed to ensure rectification.
A letter has to be written to the tax department, noting the details of deductions missed in their calculations. A salaried individual usually has the entire record of the tax demand deducted each month. This has to be accompanied by the proof of such a deduction.
For salaried income, this will be in Form 16, listing the various details of salary and tax deposited. In case of other items or heads like interest or professional fees, the details will be available from Form 16A.
There is a cascading impact of several items missed in the tax calculations. For, apart from the basic tax, there are several other heads that determine the total tax demand raised.
This includes the education cess calculated on the tax. Where there is an advance tax liability, there would also be interest charged on the bit missing.
The overall tax demand figure can go quite high due to the various interest and penalties added to the base tax to be paid. This is why one must ensure rectification in the details related to the basic tax: once that is done, all the additional interest and penalty figures will automatically disappear.
The entire process often results in situations where the tax records of the authorities and the individual payer do not match. One fallback option is available for the investor, a useful one.
This consists of the various details in the form of records they have gathered during the year. It is important to keep records of all tax dealings, so that in case of a mismatch and a requirement for the information to be given, this can be easily collected and given.
If the records are not kept, it would be difficult to get these when the situation requires, at a later stage. Such a situation can be easily avoided through some attention to detail.
The writer is a certified financial planner.